A Trader's Largest Hurdle

Chris Lori of Seaview Capital explains what he thinks is the largest challenge for traders and what methods he uses to overcome it.

SPEAKER 1: Traders, especially when they’re first starting out, have a lot of challenges to overcome. My guest today is Chris Lori to talk about some of the biggest of those. Chris, a big challenge that a trader has to overcome; talk about one of them maybe.

CHRIS: I think really with any trader managing risk is the largest challenge that they have. What’s interesting is this, is that from a matter of just understanding risk and the mathematics behind risk, it really is virtually the simplest to understand about trading, however, from a disciplinary standpoint I think that’s where traders have the largest challenge, so building for my intraday model, which is price action-based, building a bright risk model for price action intraday volatility, so because it’s the formulation of your risk model, that’s going to determine how much position sizes you can take, what position sizes under what conditions you can take because the conditions are constantly changing so you have to adjust your risk. In basic terms, the model that I use is overall average gain to average loss ratio. That allows us to work with the volatility. Rarely do we get stopped out at full stop. We’re simply managing the positions based on what we understand about volatility and we’re immediately trying to protect the trade.

SPEAKER 1: Is a model something where I plug in numbers before every single trade I take to know what my position size should be, how long I should be in it, that sort of thing? Is it a formula?

CHRIS: I think that every risk model effectively is a formula; however, I think that traders that have experience they know the risk model. For some types of traders it may require them to punch in the numbers and see what number position size it can take on that, but when you’ve done it so often you just know. You know exactly where you stand from a risk perspective because you are so intimate with the market and with understanding your equity position, so in the case of my risk model it just depends on the behavior. If volatility increases I need to give the market more room to breathe, so I’ll have to take maybe smaller position sizes to allow that volatility to play out before we can first cover and protect the position.

SPEAKER 1: First goal always?

CHRIS: Protecting the position, so in terms of it being a challenge in trading, it’s having the discipline to do this methodically and the only way we can do it methodically is by really having a deep understanding of the price behaviors and the positions we’re about to take.

SPEAKER 1: Do you trade 24/7 or do you have kind of specific times of the trading day you like to trade, even though you can trade 24/7.

CHRIS: Yeah, because I’m managing long-term positions it can be 24/7 effectively depending on what’s happening in Singapore and Europe, but as far as the intraday volatility model it’s usually, depending on what time zone I’m working from, but effectively I like the London noon hour to around the close of New York is my preferred time to trade.